Financing to operate a business involved in international trade is complicated. But it all comes down to who will
take the risk that:

The seller has enough money to purchase inventory to make the goods

The seller actually makes the goods

The shipment is made and no theft or damage occurs.

The buyer pays the seller

Who owns the goods at each point, in case something goes wrong.

In addition, shipping time means that payment can be delayed for weeks or even months.

All this requires choosing reliable vendors and customers plus a combination of financing and insurance.

Here are 4 ways global trade is financed:

Cash in advance benefits the seller; the buyer takes all the risk.

Open account (extending credit to the buyer for 30, 60 or 90 days) benefits the buyer; the seller takes all the risk.

Letter of credit is mutually beneficial. The purchaser's bank issues a letter of credit saying
that it has the money and will release it on certain terms.

Documentary collection is also mutually beneficial. The buyer sends document to the purchaser's bank and
after the buyer agrees to the terms, the bank releases funds according to the terms of the collection.

Forfaiting

Forfaiting is the process where a middle-man (intermediary) purchases the accounts receivable
from the seller at a discount, takes
all the risk of non-payment, and makes money when the accounts receivable is paid. It is most commonly used
in Europe.

Loans against import

Loans against import are bank loans that allow you time to convert the imported goods into manufacturered and saleable items. When you use
an LAI, technically you do not own the goods until you have paid for the loan. However the goods are released to you by the bank under a TR (Trust receipts) agreement
during that manufacturing period.

You must use Documentary Credit or Documentary Collection terms with the seller.

With Documentary Credit, the seller receives documents from the buyer's bank listing the documents
necessary to release the funds. The seller must present those documents in order to receive payment.

With Documentary Collection, the seller ships the goods and presents
documents to his or her bank specifying that the documents should be released to the buyer only upon
payment, or acceptance of a time draft promising payment at a later date.
The seller's bank sends the documents to the buyer's bank in order to collect payment.

The benefit of a Clean Import Loan is that it provides a business owner with the money
to pay suppliers without having to wait to sell the merchandise first. The loan is funded based on a supplier's invoice
and evidence of shipping.